[Signal Request] Offboard USDT Collateral Types

Previously, the Maker community has supported offboarding the USDT token from the Maker protocol. The process for offboarding assets has been further discussed in a recent forum thread.

This post presents a full plan for offboarding USDT vault types (USDT-A, UNI-V2-ETHUSDT-A, and UNI-V2-DAIUSDT-A), and seeks confirmation from the community to move forward with the proposed next steps.

Background

Both the Uniswap v2 vault types including USDT (ETHUSDT and DAIUSDT) have zero outstanding debt and debt ceilings set to 0, so no additional action is needed before these vault types can be deprecated.

There are 6 remaining Maker vaults using the USDT-A vault type, with the following collateralization and debt levels.

The USDT price feed is not used by any third parties, so once these vaults are closed Maker will be able to remove support for the USDT price feed and reduce operating costs.

Proposed Offboarding Process

Set the USDT-A liquidation penalty to 0%

Removing the liquidation penalty ensures that we don’t penalize users for deprecation of the USDT-A vault type.

Increase USDT-A liquidation ratio to 300%

Increasing USDT-A liquidation ratio to 300% is high enough to trigger liquidation of all remaining vaults.

After all remaining USDT-A vaults are closed, Maker can remove the USDT price feed and related vault types (USDT-A, UNI-V2-ETHUSDT-A, and UNI-V2-DAIUSDT-A).

Signal Request Poll

Do you support the parameter changes outlined above to offboard USDT and related vault types?

  • Yes
  • No
  • Abstain

0 voters

Next Steps

This signal request poll will run for the next 2 weeks, until Tuesday September 21. If a majority of forum voters (excluding abstain votes) are in favor, the proposed changes will be submitted for an on-chain governance poll the following week.

6 Likes

I agree with this in principle. However, with gas prices so high and the debt of these vaults so low - will liquidations be attractive enough to keepers or will we end up eating a loss here? Ultimately, it’s not that high a loss to eat but think we need to be up front that we are intentionally risking losses if that’s the case.

3 Likes

With gas prices so high recently, it’s possible that we might see 0 DAI bids for these vaults. The most MakerDAO would lose would be ~740 DAI, but the vault users would also potentially lose their excess collateral.

As an alternative option, MakerDAO or a community member could pay off these vaults’ debt directly. I’m not sure how reimbursement for this would work, but the amounts owed are small enough that it’s worth considering.

3 Likes

So like I said, I don’t think it’s a big issue for the Protocol to lose 740 DAI (although would it be higher once keeper kick incentive and tips are accounted for?). But it could be a PR issue if we let vault owners lose their collateral.

An option to avoid this might include Maker Governance using a flash loan to cover the liquidations. This would also be a nice demonstration of the flash mint module at work. Theoretically, if successful we could use the same tactic to tackle the much larger USDC A and PAX vaults.

1 Like

Given the amounts are so low, can we not just disable Oracles without bothering to liquidate them? Just set DC to 0 and see how many repay on their own

I guess one can debate this but with USDT being a gorilla stablecoin in the room and borrow rates on this at 8% (the DAIUSDT and ETHUSDT vaults at 2% vs 0% on DAIUSDC, etc.) I have to wonder did the protocol even give USDT a honest chance to develop here or did risk basically fail to provide a competitive borrow rate.

Look I am one of the first to suggest with others that USDT probably isn’t the cleanest shirt stablecoin, and maybe we don’t even want it in the protoco,l but there are two different questions to ask.

  1. Does governance simply want to exclude USDT? If so - then this poll is just the final nail in the coffin which was laid long ago.
  2. Did governance give USDT a fair chance? If it didn’t - then is there some inclination to even try to develop this market, or is governance dead set against?

I always felt that USDT with what 36B, against USDC 26B now, was another potential market but my general impression here was that risk and attitude by governance towards USDT was such that this market would never develop. I just think we never gave this market a fair chance with competitive rates, ever

I want to be clear here. Is governance just dead set about never having USDT in the protocol, or was this a failure to compete?

I am a no on this poll to remove until I have some clear guidance from rest of CUs, growth, risk, anyone whether we are just dead set against USDT, or whether we want to develop this market by even attempting to lower rates and using DC to manage protocol risk to give this market a fair chance to develop. If it doesn’t, or if everyone feels we did ok fine. Looks like everyone lining up to axe this, so I guess shortly all this will be a moot point.

I am all for getting rid of cruft costing us money. But lets just be clear about >20B markets we want to exclude from this protocol and why they aren’t working.

1 Like

Most likely we won’t see strong demand for USDT based vault types without matching the risk parameters (liq ratio, stability fee) with USDC based vaults - any vault user could trade USDT for USDC with low slippage and deposit that to a vault instead. But the risk of USDT defaulting seems substantially higher than USDC, so it may not make sense for us to cater to it when we have alternative stablecoin options.

2 Likes

Looking at everything maybe the better answer here is since all other stablecoin vaults are DC to 0 and moving everything to PSMs and this one has a whopping 740USDT in it probably doesn’t matter.

I think my main concern was that we are just dumping USDT from the protocol entirely without any real discussion about it.

I will just go from no to abstain.

1 Like

If people want to make a bigger effort to use USDT collaterals, definitely welcome to vote and comment in this thread :slight_smile:

But, I think there’s probably not much use in doing this unless we are willing to offer similar terms to USDC - 120% liquidation ratio for ETHUSDT Uni LP vault, and 102% liquidation ratio with near 0% stability fee for DAIUSDT Uni LP vault. I doubt this offers Maker a good risk/reward given Tether’s history of false statements about their reserves.

2 Likes